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Stocks Versus Gold: Which Is A Better Investment? The Answer May Surprise You – Forbes

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I’ve been getting a bunch of spam in my inbox recently telling me in panicked tones that the world as we know it is on the verge of ending and the only solution is to invest in gold. Touting its great returns, risk hedge capabilities and inflation protection for my portfolio, these missives implore me that if I want to preserve any semblance of wealth after the upcoming apocalypse, I must sell [enter the asset class of your choice here] and put that money to work in gold. Today. Now. Immediately.

Whenever the markets and world affairs are in turmoil—war, plague, political strife, social unrest—the gold-bugs emerge from their cocoons as predictably as cicadas do in the spring and making about as much noise. Maybe more.

It’s tempting. After all, who doesn’t seek some emotional stability and comfort during a crisis? For centuries, people have turned to gold to assuage those feelings. When uncertainty reigns, a certain calm comes from knowing you have something hard, tangible, and glistening in your possession.

For most investors, gold is like a plate of mashed potatoes, gravy and meatloaf. It is comfort food for the portfolio.

Gold as a metal has its merits. It has industrial uses, electronic conductivity and the unique quality of being both hard yet sufficiently malleable to be shaped into lovely objects of art or jewelry. We value gold as a reward for achievement or excellence. The Olympics bestows gold medals to winners, retirees get a gold watch, and we are given pep talks telling us to “go for the gold.”

Great stuff. But what about gold as an investment?

Based on the traditional one troy ounce (“t oz”, 31.1034768 grams) used by the Royal Mint (“owned by Her Majesty’s Treasury”), gold bugs quickly point to the fact that if you had bought that one troy ounce of gold in 1970 and held on to it until now, your total return would be a jaw dropping 5,333% gain! Now compare that to the performance of the S&P Composite*. Those stocks only managed a paltry 3,737% gain over that same period.

By not buying gold, you gave up 1,666% of gains. You fool.

If you break out gold prices over time, you quickly see that the biggest gains in gold came from January 1970 to January 1980, when gold topped out at $760 t oz. Investors in the 1970s were faced with the economic uncertainty of recessions, double digit inflation, and spiking oil prices. Hard assets were the place to be and no asset seemed harder than gold. With a nearly 2,075% total return over that period for an annual growth rate of 36%, gold outpaced a nearly moribund stock market. Over the same time, the S&P Composite eked out only a meager 22.79% return.

It was gold’s golden age. It took 27 years for gold to see that high again.

The price of gold began drifting down after that, hitting a low of around $257/t oz by September 1999. Values didn’t start appreciating in any meaningful way until 2005. (As an interesting aside, gold prices from 2005 to 2011 correlate pretty closely with the increasing use of the internet.) Gold has rallied and fallen since then, pretty much paralleling economic events. For example, from start of the Great Recession in 2007 to shortly thereafter, gold rose from around $810/t oz to a high of $1,794 in September 2011. But as the economy rebounded, gold sank in value, dropping back down to $1,088.90 in November 2015. Sometimes it seems gold values react no better than a Dutch tulip bulb in 1636.

Of course, these days, with the onset of Covid, a rancorous political climate, simmering social unrest, and economic uncertainty, gold again has rallied, hitting a new high of $1,931.90/t oz. in August 2020. Gold’s value seems to grow best when things are (or are perceived to be) at their worst. As an investment, it is the “pessimists play.”

But the gold bugs are quick to come to the defense of their favorite shiny metal. Cherry picking this period or that, they can show it works as an inflation hedge. As for its security, they are quick so tell you there is a reason the world’s central banks keep bars of the stuff in their vaults. (Fun fact brought to you by the U.S. Federal Reserve Bank of St. Louis:  a 99.99% pure gold bar is 9.75 inches long, 1.5 inches tall and weighs some 28 lbs./408.3324 t oz.)

The piece de la resistance is that performance number. Yes, yes, gold prices have had their ups and downs, but over the long run, investors in gold were handsomely rewarded by that quadruple percentage return. Isn’t that proof enough gold should be in every long-term investor’s portfolio?

No. There is one fatal flaw in this investment thesis. Let’s revisit gold’s 5,333% return against the S&P Composite’s 3,737% return from 1970 to 2020. Sure, if you just bought the S&P Composite and let it ride for 50 years, the return would underperform against gold.

But that comparison is wrong. The comparison leaves out the eighth wonder of the world—compounding. Add in compounding and now make the comparison. That same investor buying the S&P Composite in 1970 and reinvesting the dividends quarterly would have seen a gain of 68,430% through September 2020.

And that is the problem with gold. Gold pays no dividends. It cannot compound. It does not have economic growth. It does not innovate. It does not generate cash flow. It’s just a piece of inert metal.

Investing in equities means owning a piece of a business. A business is an economic entity creating value and in doing so, grows in value over time. Put those businesses together in an index that reflects the U.S. economy and you have the S&P 500. The S&P composite represents the S&P 500 (the largest capitalized companies in the United States), and other major stock indices. Combined, these encompass every major sector of the U.S. economy.

An investment in the S&P Composite is an investment in the U.S. economy. While the economy may ebb and flow over the years, it tends to grow. In 1970, U.S. Gross Domestic Product (GDP is the market value of the goods and services produced by labor and property located in the United States) was $1,088 billion. By third quarter 2020, U.S. GDP was $21,157 billion.

I’m putting my money on the U.S. economy. I figure if I do well enough, I’ll be able to buy a nice piece of jewelry or a watch. Probably made of gold.

*(Note: We use the S&P Composite here since data on the S&P 500 was not available for the entire time period. While investors cannot invest in the composite directly, they can invest in a mutual fund or ETF that matches the S&P 500 and other components of the S&P Composite.)

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Dogecoin dropped after Elon Musk calls it a ‘hustle’ on ‘SNL’ show

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By Alden Bentley and Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The value of dogecoin dropped sharply in early U.S. hours on Sunday, after Tesla chief and cryptocurrency supporter Elon Musk called it a ‘hustle’ during his guest-host spot on the “Saturday Night Live” comedy sketch TV show.

Dogecoin was quoted as low as $0.47 on crypto exchange Binance, down 28% from levels around $0.65 before the show.

The billionaire Tesla Inc chief executive hosted the show at 11:30 p.m. EDT on Saturday (0330 GMT on Sunday).

Cryptocurrency enthusiasts had for days been eager to see what he would say, after his tweets this year turned the once-obscure digital currency into a speculator’s dream.

Asked ‘what is dogecoin’, Musk replied, “It’s the future of currency. It’s an unstoppable financial vehicle that’s going to take over the world.”

When a show cast member Michael Che countered, “So, it’s a hustle?”, Musk replied, “Yeah, it’s a hustle.” And laughed.

Musk is the rare business mogul to have been asked to host the venerable comedy TV show. The timing puts Musk back in the spotlight just as Tesla’s stock is losing steam following last year’s monster rally.

The unconventional CEO has posted numerous comments about cryptocurrencies on Twitter and criticized regular old cash for having negative real interest rates.

“Only a fool wouldn’t look elsewhere,” he said in February.

His cryptic tweets “Doge” and “Dogecoin is the people’s crypto” that month kicked off a rally in dogecoin – created as a parody on the more mainstream bitcoin and ethereum.

On Thursday, Musk tweeted: “Cryptocurrency is promising, but please invest with caution!” with a video clip attached in which he said, “it should be considered speculation at this point. And so, you know, don’t don’t go too far in the crypto speculation …”

But he also said, in the video, that cryptocurrency has a “good chance” of becoming what he called “the future currency of the Earth.”

On crypto data tracker CoinGecko.com, dogecoin has jumped more than 800% over the last month and is now the fourth-largest digital currency, with a market capitalization of $73 billion. It hit a record high Thursday above $0.73.

It has overtaken more widely used cryptocurrencies such as litecoin and tether.

Tesla said in February it bought $1.5 billion worth of bitcoin and would soon accept it as a form of payment for its electric cars, a large stride toward mainstream acceptance that sent bitcoin soaring to a record high of nearly $62,000.

Tesla shares closed 1.3% higher at $672.37 on Friday.

(Reporting by Gertrude Chavez-Dreyfuss and Alden Bentley in New York, and Noel Randewich and Hyunjoo Jin in San Francisco Additional reporting by Joe White and Vidya RanganathanEditing by Matthew Lewis & Simon Cameron-Moore)

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Wealthsimple hits $4 billion valuation on funding from Ryan Reynolds, Drake

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Wealthsimple

(Reuters) -Wealthsimple said on Monday it has raised C$750 million ($610.40 million) in its latest funding round, which more than doubled the Canadian fintech company‘s valuation to C$5 billion.

The latest funding round included participation from celebrities Drake, Michael Fox and Ryan Reynolds, according to the company.

The Toronto-based company that has helped make stock trading, peer-to-peer money transfers and tax filing easily accessible, said it will use the amount raised to further expand its market position, product suite and team.

The latest funding round, led by venture capital firms Meritech and Greylock, also includes investments from iNovia, Sagard, TSV and Redpoint.

The funding consists of C$250 million primary fundraising by Wealthsimple and a C$500 million secondary offering by holding company Power Corp of Canada, its largest shareholder.

Wealthsimple said it has seen rapid growth in the past 14 months as Canadians took an interest in stock trading during the COVID-19 pandemic.

Earlier this year, the company said it plans to grow revenue by adding premium features for its clients.

($1 = 1.2288 Canadian dollars)

(Reporting by Eva Mathews and Tiyashi Datta in Bengaluru; Editing by Shailesh Kuber and Shounak Dasgupta)

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Ethereum breaks past $3,000 to quadruple in value in 2021

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SINGAPORE (Reuters) –Cryptocurrency ether broke past $3,000 on Monday to set a new record high in a dazzling rally that has outshone the bigger bitcoin, as investors bet that ether will be of ever greater use in a decentralised future financial system.

Ether, the token transacted on the ethereum blockchain, rose 3% on the Bitstamp exchange to $3,051.99 by lunchtime in Asia. It is up more than 300% for the year so far, easily outpacing a 95% rise in the more popular bitcoin.

In part, the big rally is a catch-up to late 2020 gains in bitcoin, said James Quinn, managing director at Q9 Capital, a Hong Kong cryptocurrency private wealth manager.

It also reflects improvements to the ethereum blockchain, he said, and a growing shift towards “DeFi”, or decentralised finance, which refers to transactions outside traditional banking for which the ethereum blockchain is a crucial platform.

“At first, the rally was really led by bitcoin because as a lot of the institutional investors came into the space, that would be their natural first port of call,” Quinn said.

“But as the rally has matured over the last six months, you have DeFi and a lot of DeFi is built on ethereum.”

The launch of ether exchange-traded funds in Canada and surging demand for ether wallets to transact non-fungible tokens such as digital art have also pushed up the price.

The ether/bitcoin cross rate has soared more than 100% this year and hit a 2.5-year high on Sunday, pointing to a degree of rotation into the second-biggest cryptocurrency as investors diversify their exposure.

“Surging DeFi volumes continue to push ethereum prices higher as investors gain confidence in crypto and see ethereum as a safe second-place asset,” said Jehan Chu, managing partner at Hong Kong blockchain venture capital firm Kenetic Capital.

Illustrating the momentum for such new transactions, Bloomberg reported last week that the European Investment Bank plans on issuing a digital bond over the Ethereum blockchain, while JP Morgan plans a managed bitcoin fund.

Bitcoin, the world’s biggest crypto asset with more than $1 trillion in market capitalisation, regained the $50,000 mark last week and hovered around $58,000 on Monday, up about 3% but well below its record high at $64,895.22.

The U.S. dollar was broadly steady. [FRX/]

(Reporting by Tom Westbrook and Vidya Ranganathan; Editing by Himani Sarkar & Shri Navaratnam)

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